Managed Chaos: The Fragility of the Chinese Miracle
Rukmani Gupta ·       

At a time when China and India are said to be staving off the economic crisis in Asia and expected to lead the world into recovery, a book on the inner workings of the world’s third-largest economy is indeed timely. The aim of the book, as set out by the author, is to better understand what is propelling China’s growth and the anomalies that surround this growth. By drawing on scholarship on such wide-ranging issues as China’s banking reforms, the energy crisis, centre-province relations, and income inequality, among others, the author has attempted to capture the complexities of China’s economic development.

The issue of sustainability in production is raised at the very beginning and it is this theme that sets the tone for subsequent enquiry. The author identifies two popular but conflicting narratives on China’s development. The first views China’s economic growth as relentless and purposeful, guided by a leadership determined to transform China into a competitive market. The second is that of an economy unable to complete the transition from a state-owned and centrally-planned economy. Neither adequately explains the degree of discontent ripe in a country witnessing phenomenal economic development. It is here that the very validity of China’s success story comes to be questioned. On the basis of extensive Western scholarship and a study of growth figures over the past three decades, the verifiability and authenticity of the data provided by the China Statistical Bureau is questioned. These official figures (although revised by many scholars) constitute the primary data on China’s economic growth and their susceptibility to manipulation poses a serious challenge to accepted notions of ‘double-digit’ growth. The author then identifies the reasons for inaccuracy in reporting economic data, which ultimately are found to have a systemic cause.

Jha’s formulation that it is China’s ‘Political Economy’ and not just economy that needs to be studied to understand the impetus and direction of Chinese growth cannot be over emphasized. The socio-political realties of China today will determine the economic figures in the years to come.

The emergence of the “non-state” sector in China, as understood by scholars in the West and international agencies is vigorously debated. The fact that the central government along with the tiers of local government (and the attached SOEs) all invested in the new market economy is taken as proof that the “proliferation of enterprises was not driven by competition but its exact opposite, the exercise of  state power.” The author contends that the term “non-state” sector remains problematic with reference to China. It is also stated that there exist over 20 forms of ownership in China wherein private enterprises and the SOEs form opposite ends of the spectrum. Given that in the mid-80s, it was only the Chinese state that had the wherewithal to invest in a market economy, the decentralization of this ability to invest was, in fact, the first step towards a competitive market economy. In an economic set-up where land was not yet a saleable commodity, the active participation and encouragement of the state was a necessity. Also, the very existence of multiple forms of ownership implies a move away from the state-owned and controlled enterprises. The assertion that the multiple forms of ownership, embodying different degrees of compromise between the public and the private invariably lead to losses being passed on to the state, is not a given. The last few years have seen a concerted effort being made by the government to ensure greater accountability.

The slow and partial reform of the SOEs is also identified as a major hurdle in China’s economic growth. At the same time, the breaking of the iron-rice bowl is also stated as having created unprecedented levels of income inequality and unemployment. While the book suggests that instead of a long drawn-out process of SOE reform, a comprehensive overhaul would have been more productive, the social problems attendant with such a move have not been clearly identified. The realities of the Chinese state that compelled the adoption of certain slow, partial and even inefficient policies merit more intensive focus.

The attempts by the central government to correct the problems of exploitative taxation and corruption at the local level have been well-documented. The ‘tax-for-fee’ reform and its consequences have also been discussed in detail. Although the deficiencies of the Chinese economic model have been clearly catalogued, suggestions for their more efficient revision are missing. Perhaps this itself is a topic worth dedicating an entire book to. This book does an excellent job in establishing the premise that when it comes to China, a simple economic analysis is insufficient. It provides the reader with an understanding of the complex web of social, political and economic factors that have shaped China’s economic growth. It is indeed a valuable resource for scholars, in terms of both the analysis and extensive sources it has garnered information from.